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11 Oct, 2010 10:16

Russian economy coping well but caution remains

The Russian economy has so far coped with the crisis better than other economies, and retains a greater degree of certainty according to finance Minister Alexey Kudrin.

Speaking after the annual meeting of the International Monetary and Financial Committee of the IMF's Board of Governors in Washington on Sunday, Kudrin indicated "there is more certainty in Russia than in other countries" and adding that the developing world is "viewed more positively and more optimistically by all.”

President of VTB bank, Andrey Kostin, believes crisis will change the role of emerging markets.

“One has to accept the changing role of the emerging markets, including Russia, China, Brazil, India in the international economy. Their role is increasing and in a couple of decades their economies will be larger than the economy of the well developed countries.”

Kostin also added that Russia was unlikely to be caught out by global currency volatility and government intervention which has some referring to a currency war.

“Russia isn’t involved in this kind of conflict. The Russian exchange rate completely depends on market principles and, I think, the important conclusion from this is that Russia should develop Rouble as an international currency more and more, particularly in trade with CIS countries, in trade with other emerging market economies. I think, that is what Russia should do, that’s what’ve started to do, but we should speed up the process.”

World Bank Country Director for Russia Pedro Alba noted that Russia suffered doubly during the crisis.

“The crisis hit Russia hard – it was one of the countries worst hit,” Alba told RT. “In particular, because of the correlation between the oil price and the capital inflows to Russia. So Russia suffered doubly: there was a sharp drop of capital inflows and there was also a drop of oil prices. So I think the key lesson, which the authorities have learned quite well, is the need to diversify the economy, and in that sense I think they are doing a wonderful job of focusing on a whole series of areas which are important for diversification.”

Finance Minister Kudrin played down talk of a currency war, but referred to increasing pressure to use currency movements for competitive advantage.

“There’s not yet a currency war going on – we are talking only about expectations that currency flows may become a more powerful instrument in competitions some day. Today we have a clear example of the U.S. and China – the situation between them is unique, but we can’t say there’s a similar war in any other part of the world.”

However, Finance Minister Kudrin noted that Russia would become susceptible if the global economy deteriorated.

"If there is a substantial deterioration globally, that will affect demand for energy and metals, trade, capital flows."

Kudrin added that if worldwide macroeconomic performance is no more than 10% worse than forecast, Russia would be likely to remain relatively unaffected. But he sounded a cautionary note about the possible impact on Russia if performance was down 30% on forecast.

“Russia will begin to feel the pressure. If it's more than 30%, the effect will be more noticeable and might alter the economic development scenario."

Kudrin added that the October 2009 forecasts were very pessimistic and had since been revised upwards, but noted that “we must be prepared for various scenarios."